Falling dollar cushions effect of oil price rise
WHILE Americans gaped wideeyed as oil passed $US90 a barrel, countries with stronger currencies have not felt the same sticker shock: the rapidly falling dollar has provided a de facto discount. Or it did. That was until oil’s 30 per cent surge since late August eroded what small benefit holders of euros, British pounds, Indian rupees and other currencies enjoyed from the dollar’s decline over the same period.
Worldwide, economies are feeling the pinch of high oil prices, raising concerns that energy inflation could slow growth abroad. But economists say global economies from Europe to China likely face no more risk of a recession due to high oil prices than does the US.
Increased energy efficiency, a progressive rather than shocking climb in oil prices, and faster-paced income growth have made higher energy prices less harmful today than 30 years ago.
‘‘ Previously, we have said that once oil crosses $80 and stays above there for a year or so, the risk of recession is high,’’ said Song Seng Wun, regional economist at Singapore-based CIMBGK Research. ‘‘ But at this point, whether that still applies or not, we don’t know. Economies have become more efficient, businesses are more efficient, we use less oil. So we’ll see.’’
A barrel of crude crossed $US90 a barrel for the first time last week. The same barrel bought with euros looks like $US63. Bought with British pounds a barrel of crude looks more like $44.
Other currencies have also appreciated against the dollar, giving fastgrowing countries such as China and India a slight break. China’s yuan has climbed 5 per cent against the dollar from a year ago; India’s rupee has risen 14 per cent.
The effect on consumers overseas is more difficult to compare with the US, given that Europeans face high taxes on fuel, and China and India have staterun oil companies that control oil prices to smooth swings.
Some analysts speculate that without the rupee’s increase, the Government might have raised retail fuel prices by now. India’s petroleum ministry last week said it has no plans to hike fuel prices until next March. China, worried about spiking consumer price inflation, announced a moratorium on September 20 blocking petrol price increases.
Oil’s rise is at least partially due to the US dollar’s decline. A weak dollar increases the attractiveness of commodities, which are seen as retaining their underlying value relative to all currencies, and speculative interest in the energy market has surged in recent weeks. AP